Lee Kwang-jae, chairman of the National Assembly's Special Committee on Budget and Accounts, is looking for a new survival formula for future generations in assets the state already holds. Universities own vast tracts of land but face restrictions because the land is tied to educational and research purposes, while the National Pension Service manages enormous sums yet invests only marginally in domestic housing supply.
In an interview with Seoul Economic Daily, Lee laid out a plan to move away from the conventional approach of injecting budget funds and instead make active use of university land, pension funds and state-owned property to create jobs and housing while also helping citizens build assets.
His signature proposal is the "university town," a U.S.-style model in which companies, research institutes and housing cluster around a university to form a single city. The idea is to create a place where students can work and live after graduation, not just a campus where they study. To that end, he is pushing to ease floor-area ratio and building-height limits on university land, along with rules governing the use of educational property, so that research facilities, apartments and dormitories can be built together. "A university town is a combined solution that addresses jobs, housing and regional revitalization all at once," he said, adding that he would link the plan to the government's policy on supra-regional mega special zones.
He also proposed a new asset-building scheme designed for the age of artificial intelligence. Under the plan, the state would invest 100 million won per newborn and manage the money at an average annual return of 7%, producing about 386 million won in assets by the time the child turns 20. Of that, 100 million won would be available for education or starting a business, with the rest invested over the long term to grow into retirement savings. "When the AI world becomes universal, gains from labor will shrink, so we need to prepare from now," Lee said. Because the program is large enough to require 25 trillion to 30 trillion won a year, he said a separate management structure would be needed along with public consent.
The following is an edited transcript of the interview.
Q. You have presented university towns as an alternative that could address jobs, housing and regional decline at the same time. What exactly do you have in mind?
A. A university town is a combined solution that addresses jobs, housing and regional revitalization all at once. Creating jobs requires talent and policy, and the core of that is the university. Under President Park Chung-hee, the electronics department at Kyungpook National University was built up to foster the electronics industry in Gumi, and POSTECH was founded when the Pohang steel mill was being built. The enrollment of the mechanical engineering department at Pusan National University was also sharply expanded to develop the machinery industry in Busan. In the United States, Silicon Valley emerged because Stanford University was there, and Samsung Electronics moved in because the University of Texas at Austin was there. Industry, jobs and housing have to be created together around universities.
Q. What aspects of American university towns are you trying to bring to Korea?
A. Stanford University leases university land to companies for 90 years. Companies move in relatively cheaply and hire students, and students get jobs. When I visited Tsinghua University in China, there were two hotels on campus, including a Holiday Inn, and global companies such as Google had moved in as well. Companies, research institutes and housing all sit inside the university. We should also use the hundreds of thousands of pyeong of land that universities across the country hold to attract companies and research institutes and to build dormitories and apartments.
Q. What regulations need to be lifted to build university towns?
A. Right now we are bound by rules that bar profit-making businesses on assets designated for university education. We also need to move away from the early-20th-century zoning concept that strictly separated residential, commercial and industrial districts. Many university buildings were built low, at three to seven stories, because money was short in the past. The 15 million pyeong of the Daedeok research complex was developed as a garden-city-style research park, so it is capped at seven stories. Corporate research centers from Hanwha Aerospace, SK and HD are located there, but the height limit keeps them from using space efficiently. If we allow buildings up to 30 stories and receive part of the land as a public contribution to create international schools and cultural facilities, it becomes a city where foreign researchers can raise children and live.
Q. Which areas could actually adopt the university town model?
A. The Myongji University site in Yongin alone is 300,000 pyeong. If we ease the floor-area ratio and build apartments and research centers, and research centers from Samsung Electronics and SK hynix move in, that itself becomes a semiconductor cluster. The 440,000 pyeong of university land in downtown Jeonju can be linked with the National Pension Service, which relocated to Jeonju. The idea is to create a contract-based department and build the country's top program in fund management. Gyeongsang National University in Jinju can be connected with Korea Land & Housing Corporation, which moved to the innovation city, and turned into the nation's leading university in architecture and urban planning. It means combining universities and industry in a way that fits each region.
Q. Could university towns also help with housing for young adults?
A. At present, only 11% of university students in Seoul can be housed in dormitories. Off campus, monthly rent for a studio runs more than 600,000 won. If housing is built on university land, there is no land acquisition cost, so it can be supplied relatively cheaply. If companies and research institutes come in together, jobs and housing can be solved at the same time. The essence of policy for young adults ultimately comes down to jobs and homes.
Q. How far have discussions with the government progressed?
A. I have already raised it with the prime minister, and the government is holding extensive cross-ministry consultations. We plan to include measures to create livable conditions within university spaces in the supra-regional mega special zone bill and work through them together. Rules on the use of university land need to be eased so that companies and housing can move in together.
Q. You also proposed a national lifetime basic asset scheme. Where did the idea of having the state invest 100 million won for each newborn come from?
A. As the AI revolution accelerates, the value of big tech firms and companies will be maximized while labor income shrinks. I thought about how to protect people's lives even as we become an advanced AI nation. I came to believe we need a major shift from a state that spends money to a state that earns money. When a child is born, 100 million won goes into a sovereign wealth fund to be managed, and by age 20 the child has about 386 million won. Of that, 100 million won would be used as venture capital for young adults, for things like education or starting a business.
Q. How would the rest of the assets be used? And what is the basis for a 7% target return?
A. The rest would stay invested, building to about 6 billion won by age 65. Of that, 4 billion won would be drawn down like a pension to stabilize retirement, and 2 billion won would be reinvested, creating a virtuous cycle. The target return is set at 7%. That reflects average returns of 6% to 8% at major global funds, a cumulative return of about 5.5% at the Korea Investment Corporation and returns in the 8% range at the National Pension Service. If lifetime earnings, the national pension and the lifetime basic asset are combined, anxiety about retirement can be reduced.
Q. Based on 250,000 to 300,000 newborns, this requires 25 trillion to 30 trillion won a year. How do you plan to secure the funding and the management structure?
A. If the national budget is 820 trillion won, this is about 3% of it. A separate management structure will be needed. The Korea Investment Corporation can invest mainly overseas, and there are also existing vehicles such as the national growth fund and the New Deal fund. How to manage it for stable returns requires further discussion. Because this amounts to creating almost another national pension, there has to be social consensus. We already spend 25.7 trillion won a year on the basic old-age pension. As the number of older adults keeps rising, we need a fundamental response.
Q. Why do you emphasize the idea that the state should invest directly and generate returns?
A. Until now, the state has been thought of only as an entity that collects and spends taxes. But as the AI revolution accelerates, the capital gains big tech earns will become enormous. This is an era in which companies like Google issue corporate bonds at higher rates than U.S. Treasuries to invest. If big tech succeeds, capital gains grow that much, so the state should be investing from now. After AI becomes universal, gains from labor may shrink, so we have to prepare in advance.
Q. You have stressed "four purses" as a way to use the assets the state already holds.
A. We should not try to solve every problem with the government budget alone. We can use a range of assets, including state property, local governments' public property, state-owned enterprise assets, pension funds and policy finance. For example, to increase public daycare centers, facilities have to be built with the health ministry's budget on land owned by the health ministry. From the public's perspective, it does not matter whether that land belongs to the defense ministry or the interior ministry. Using idle state and public land is far more efficient. Yet even the ledgers for state and public land are not properly organized. We plan to overhaul the relevant laws so that state property and public property can be managed systematically. Policy funds should also be used as seed money to draw in private investment.
Q. You also proposed raising the lump-sum inheritance tax deduction to 1 billion won from the current 500 million won.
A. I am fundamentally opposed to tax cuts for the wealthy. But taxes on the middle class and wage earners should be reduced. In the past there were more single-income households than dual-income ones, and when the husband dies first, the surviving spouse is often left with a single home. Average life expectancy is 80 for men and 86 for women. For the surviving spouse to live out the rest of her life securely, the tax burden on inheriting a home has to be eased. Roughly 1 billion won should be deducted for the middle class to maintain their standard of living.
Q. You take the position that the tax burden on wage earners should also be lowered.
A. Salaried workers have 100% of their income exposed, while high-earning self-employed business owners have a lower rate of income capture. Assume both earn 50 million won. The wage earner pays a substantial amount in income tax and the four major insurance contributions. By contrast, earning 50 million won from stock investment can carry a different tax burden. It is unfair for wage earners alone to bear an excessive burden. We need to lower the tax burden on the middle class and salaried workers to increase the money they can actually spend. This is a different matter from tax cuts for the wealthy.
Q. Are you considering indexing income tax brackets to inflation?
A. I am thinking about that too. But before that, there is a need to review the tax brackets and various standards that have not changed in more than 20 years. They say a landscape changes in a decade, yet far too many standards have stayed the same for more than 20 years. Taxes can go up and they can come down. The same goes for the daily rate used to convert fines into labor service. Old standards need to be fixed so there are no more controversies over "emperor labor," where someone has hundreds of millions of won in fines written off for a single day of work.
Q. As budget committee chairman, do you also have concerns about the revenue structure?
A. We have been preoccupied only with how to spend taxes frugally, with too little thought about how to collect them efficiently. Now that revenue from wage income tax has overtaken corporate tax, we have to examine whether continuing to place the burden on wage earners is sustainable. It is also worth studying whether to move toward adjusting the value-added tax, as Europe has. Fundamentally, the goal should be to grow the economy and ease the public's tax burden.
Q. What about the plan to lower the cap on internal reallocation of project funds in the future response fund to 20% from 30%?
A. We will have to watch the discussion. I support establishing the future response fund itself. If all the revenue that comes in is spent, it is hard to cut back later. We need to build a reservoir and make forward-looking investments. Right now we have to judge whether this is a time to pay down debt or a time to invest, and this is an era in which even Google issues corporate bonds at higher interest than government bonds in order to invest. We have to create capacity to invest. That said, the National Assembly's review of the fund has to be extremely thorough.
Q. There are also concerns about moving existing budget programs into the future response fund.
A. Programs that are not urgent or necessary will be weeded out. If there is no justification, it will be hard to get through. Because the future response fund spans multiple ministries, debate is already under way in the standing committees. There will be intense discussion in the budget committee as well.
Q. What is the most important criterion in the $350 billion investment in the United States?
A. The Korea-U.S. investment corporation has to look at returns but also weigh national strategic considerations. In the past we had a chance to acquire Westinghouse. Doosan could have bought it, but because it bid too little, it went to Japan's Toshiba and later to a Canadian private equity fund. The reason we pursued the acquisition at the time was that the nuclear market was going to grow and the royalties we paid each time we exported a nuclear plant overseas were too large. Just a few years ago Westinghouse looked like it was failing, but now it is a company you cannot buy even with money. Beyond the economic value, there was enormous strategic value in not having to pay royalties when exporting nuclear plants.
Q. Do you mean the Alaska LNG project should also be approached from a strategic perspective?
A. The business case has to be examined carefully, but we also need to look at what Alaska means in America's global strategy. President Trump's first executive order was on developing Alaska. There are also continuing moves to secure resources in Venezuela, Panama and Greenland. Rather than thinking only about laying a pipeline, we should go in with several negotiating options. First, we could propose that the United States build the pipeline itself while Korea commits to long-term gas purchases.
Q. What other benefits could Korea secure from the Alaska project?
A. One option is to bring gas from Prudhoe Bay in the north down to the south, liquefy it and transport it on LNG carriers. Korea is the world's strongest in LNG carrier construction. Korea also need not take part alone; it could bring together countries with large gas demand, such as Japan, Taiwan and Southeast Asian nations, for joint participation. Just as Singapore makes money as a logistics hub, Korea could become a gas logistics platform country. If Korea and Japan jointly purchase LNG, we can secure strong bargaining power and build a safety net against energy crises.
Q. What is the best way to finance the U.S. investment?
A. When Korean companies build plants in the United States, they do not take all the money from home. They raise it locally. Project funds should be raised from U.S. financial firms such as JPMorgan or Apollo. They too have to recoup their investment, so they will work to make the project succeed. That structure reduces sovereign guarantee risk compared with one in which our government guarantees everything.
Q. What additional conditions should Korea demand in negotiations with the United States?
A. We should push hard to win exemptions under Buy America rules for goods Korean companies produce locally. When the Korea-U.S. free trade agreement was negotiated under President Roh Moo-hyun, we came close to a fight but came away with gains. From the U.S. perspective as well, Korea is indispensable in global strategy. Japan cannot substitute for everything Korea can offer in semiconductors or shipbuilding. We should use the bargaining power we have to secure practical gains, such as joint investment with world-class research institutions like MIT.
Q. What is behind your proposal to expand National Pension Service investment in domestic housing?
A. The National Pension Service is spending more than 50 trillion won on overseas real estate investment alone. The question is whether to earn 7% on overseas property or 3.5% to 4% by investing in domestic housing. If it can stably generate returns above government bond yields, investing in domestic housing can revive the construction economy and also address the public's housing problems. I do not think we have to insist on 7%. The most important premise, though, is the National Pension Service's returns and stability. The pension itself must not be shaken.
Q. What is needed to make pension fund investment in housing a reality?
A. The Ministry of Land, Infrastructure and Transport should create a project financing model that pension funds can join and design incentives such as acquisition tax cuts. It is for the National Pension Fund Management Committee to judge strictly on its own. I have not yet received a formal report from the ministry.
Q. How do you view the need to increase the housing supply budget?
A. The housing supply budget definitely has to be increased. Currently about 9.8 trillion won, close to 10 trillion won, is provided to the Housing and Urban Fund from the general account. Many lawmakers are arguing for adding about 10 trillion won more. Fiscal support has to grow for quality housing to be supplied cheaply.
Q. You also proposed establishing a Busan-Ulsan-South Gyeongsang investment corporation.
A. Busan, Ulsan and South Gyeongsang Province form a core axis accounting for 20% of the country's manufacturing. New companies for the future need to be identified and invested in, but general account budgets have designated uses, making new investment difficult. The regional funds created under the Moon Jae-in administration were too small, so companies founded in the regions went up to Seoul to raise follow-on investment. Regional investment corporations are needed to prevent that. The Busan-Ulsan-South Gyeongsang area also has plenty of private capital accumulated from traditional manufacturing. That capital should be channeled back into the region, combined with the policy finance functions of the Korea Development Bank.
Q. You have stressed shifting to a rail-centered country for balanced regional development.
A. Where the past was road-centered, now we have to open a rail-centered era that puts the whole country within half a day's travel. It should take an hour to an hour and a half from Seoul to Busan and an hour from Seoul to Gongju. The capital region should also be densely connected by GTX lines and rail networks to cut commuting times. Rail is what connects provincial residents to the cultural infrastructure Seoul has built up over the past 70 years, like the Seoul Arts Center.
Q. There are many criticisms that provincial rail projects lack economic feasibility.
A. Provincial rail should not be approached solely through the current benefit-cost logic. When the Honam high-speed rail line was built under President Roh Moo-hyun, there was strong opposition on the grounds that it did not pencil out. But the line was built, the Yeosu Expo was brought in, and Yeosu has now entered an era of 10 million visitors a year. Because the Gangneung KTX line was built for the Pyeongchang Winter Olympics, Gangneung also became a city of 20 million visitors a year. Infrastructure has to come first for people to travel and for economic feasibility to emerge.
Q. What is the remedy for the governing camp's falling approval ratings and concerns about party-government relations?
A. We have to focus on the three fundamental tasks President Lee Jae-myung has set: jobs, housing and finance for low- and middle-income households. There is a mistaken assumption in politics that policy does not win votes. Approval ratings fall precisely because policy is not pursued properly. Even if a child's grades do not improve right away, parents have faith when they see the child studying late into the night. The public, too, trusts a government it sees working consistently to improve livelihoods. Party-government relations also need to be systematized. There should be intense party-government meetings on Sunday, the presidential senior secretaries' meeting on Monday, the cabinet meeting on Tuesday and the party's follow-up legislative and budget measures on Wednesday, all flowing consistently.